P&G still sees Gillette closing this fall

U.K. consumer advocate raises concerns to E.C.

By

DanBurrows

NEW YORK (MarketWatch) -- Procter & Gamble Co. said Tuesday that it still expects its $57 billion acquisition of Gillette Co. to close in the fall, despite a British consumer group's call to have European antitrust regulators take a longer look at the deal.

Which, a London-based consumer advocate, asked the European Commission's competition regulators to further investigate the proposed deal, saying that the combined company's portfolio of brands could push products of smaller competitors off retailers' shelves.

European regulators are supposed to rule on the deal by July 15, after pushing back their original deadline from July 1. The E.C. also has the option to launch a second, more in-depth inquiry, which could take as long as 90 working days.

A spokeswoman for Cincinnati-based P&G
PG, -0.08%
said that the company continues to be in discussions with European regulators and that those discussions have been productive.

E.C. spokesman Jonathan Todd said the commission hasn't made a decision yet and will rule by July 15 on whether to clear the deal or proceed to a second investigation.

A spokesman for Gillette
G, +0.53%
wasn't immediately available for comment.

Shares in P&G, a Dow Jones Industrial Average component, eased 15 cents to close at $52.75. Boston-based Gillette's stock dipped 21 cents to finish at $50.50.

Both companies' stocks recovered somewhat from deeper losses earlier in the session after CNBC reported that the E.C.'s review could enter the second phase.

Regulators are looking at whether the combination
PG, -0.08%
of P&G's Crest oral-care business and Gillette's Oral-B dental-care business will pose a threat to competition and hurt consumers. The companies also have some overlap in the deodorant and antiperspirant market, such as P&G's Secret brand and Right Guard from Gillette.

'A number of concerns'

Which, the U.K. consumer advocate, raised its concerns in a letter to the commission in late June.

"We have not taken a firm view of whether the merger should be allowed or blocked," the group said. "We do, however, have a number of concerns regarding the merger that we think warrant further investigation."

If a combined P&G and Gillette were to push smaller competitors from store shelves, that could also hurt consumers, Which said, as they would have fewer products and prices to choose from.

"Obviously on their own Gillette and P&G have some ability to encourage retailers to stock products outside their immediate 'must stock' items," Which said. "It would be interesting for the Commission to study the degree to which the merged entity could full-line force its range."

Antitrust experts in Brussels told AFX News that they expect the E.C. to clear the deal by July 15. The Commission is currently examining remedies to competition concerns, and has deployed those remedies for market testing. The regulators typically don't open probes once they are at that point in the process, one legal expert told AFX.

Prior to the E.C. extending its ongoing probe to July 15, it was reported that P&G and Gillette are preparing to divest some of their smaller oral-care businesses. The move is designed to help win antitrust approval in Europe, the Wall Street Journal reported, citing people familiar with the matter.

Given the overlap between P&G and Gillette's dental-care offerings, such as Crest White Strips and Rembrandt teeth-whiteners, the companies might need to divest product lines generating a few hundred million dollars in sales to placate the E.C., the Journal reported.

However, any divestitures the companies might have to make would be relatively minor, said A.G. Edwards & Sons analyst Jason Gere.

"You have about $500 million in sales overlap between the companies out of a total of $65 billion, which is less than 1%," Gere said.

In addition to its extensive dental-care products, P&G makes Tide detergent, Folgers coffee, Pampers diapers and numerous other billion-dollar brands. Gillette, best-known for its wet-shave razors, also makes Duracell batteries and Braun electric razors and small appliances, as well as Oral-B.

As part of the review process, European regulators are surveying competitors and retailers to determine whether the combined companies' portfolio of brands would push other products off store shelves, or give P&G and Gillette too much pricing power.

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